Sundance Land Corp. v. Community First Federal Sav. and Loan Ass'n

• Decision Date: 23 February 1988
• Docket Number: No. 86-3503,86-3503
• Parties: , 1988-1 Trade Cases 67,924, RICO Bus.Disp.Guide 6876 SUNDANCE LAND CORPORATION, a Washington corporation, Plaintiff-Appellant, v. COMMUNITY FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION; Columbia River Service Corporation, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 653

840 F.2d 653

56 USLW 2525, 1988-1 Trade Cases 67,924,

RICO Bus.Disp.Guide 6876

SUNDANCE LAND CORPORATION, a Washington corporation Plaintiff-Appellant, v. COMMUNITY FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION Columbia River Service Corporation, et al Defendants-Appellees.

No. 86-3503.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Sept. 3, 1986.

Decided Feb. 23, 1988.

John C. Riseborough, Keith A. Trefry, Paine, Hamblen, Coffin, Brooke & Miller, Spokane, Wash., for plaintiff-appellant.

Douglas M. Ragen, Portland, Or., for defendants-appellees.

Appeal from the United States District Court for the Eastern District of Washington.

Before FLETCHER, FERGUSON and REINHARDT, Circuit Judges.

REINHARDT, Circuit Judge:

I. INTRODUCTION

This action arises out of a loan transaction that was consummated between the several appellees, allegedly to the ultimate detriment of the appellant, Sundance Land Company ("Sundance"). Sundance seeks monetary damages and injunctive relief based upon appellees' alleged violations of the 1982 Amendments to the Home Owners' Loan Act of 1933 (HOLA), 12 U.S.C. Sec. 1461 et seq., the federal common law and Washington State doctrines of quo warranto, and the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. Sec. 1961 et seq. Several other pendent state law claims are also pleaded. The district court granted defendants' Motion to Dismiss all causes of action pursuant to Rule 12(b)(6), Fed.R.Civ.P. We now reverse that holding, and conclude that appellant alleges facts sufficient to state a claim for injunctive relief under the Home Owners' Loan Act, but not for damages under that Act, or under RICO. We also hold that relief based on the doctrine of quo warranto is inappropriate. The remaining pendent claims are remanded for further consideration in light of our holding on the HOLA injunctive relief claim.

II. BACKGROUND

Review of a dismissal for failure to state a claim under Fed.R.Civ.P. 12(b)(6) is de novo. Kelson v. City of Springfield, 767 F.2d 651, 653 (9th Cir.1985). We accept all material allegations in the complaint as true and construe them in the light most favorable to the appellant. Id. When we apply this standard of review to the facts alleged in appellant's complaint and first amended complaint, we accept the following facts as true. On or about September 1, 1983, title to the land at issue, a fruit orchard located in the state of Washington, was in appellee Brenner, and was encumbered, in the following order, by a $1.5 million mortgage in favor of Mutual of New York, $1.8 million in favor of appellee Community First Federal Savings & Loan Association ("Community"), and $300,000 to $1.8 million in favor of Holeman Limited Partnership ("Holeman"), appellant Sundance's predecessor.

In September, 1983, Brenner and Community represented to Holeman that Community was willing to lend Brenner $8 million so that Brenner could pay off Community's existing $1.8 million lien, make improvements to the orchard property, and supply the orchard needed operating capital. Community conditioned its commitment to lend the $8 million upon Holeman subordinating its mortgage to the new loan, so that Community's expanded loan would be in a second lien position, inferior only to Mutual of New York's.

Relying upon Community's and Brenner's representations that the new loan was necessary to insure the continued viability of the orchard, Holeman agreed to release its existing superior mortgage. Thereafter, Community agreed to grant Brenner the $8 million loan. Unbeknownst to Holeman, Brenner agreed not only to pay off the loan but also to construct two motels on land he owned and to convey them clear of all encumbrances to Community. To construct the motels, Brenner, in accordance with its agreement with Community, diverted several million dollars of the loan proceeds from orchard improvements and maintenance. Because he could not make needed repairs in the orchard, its market value declined.

In 1984, Sundance acquired Holeman's mortgage. At about the same time, Brenner defaulted on the underlying obligations. Following Brenner's default, Sundance sought to collect its debt and foreclose its mortgage. When Sundance considered initiating foreclosure proceedings, however, Brenner and Community falsely represented to Sundance that the orchard was worth more than the existing mortgages on the property, and that a substantial portion of the loan proceeds was in fact being used to make improvements to the orchard. In reliance on these representations, Sundance accepted a quitclaim deed to the property from Brenner in lieu of foreclosing on the mortgage.

When Sundance learned of the extensive use of the orchard loan proceeds to build the two motels and of the decline of the orchard, it brought this action in federal court seeking to enjoin Community from foreclosing on the orchard property, and also damages. Community has since filed suit in Washington state court to foreclose on the mortgage, and the Grant County Superior Court has ruled that foreclosure would be improper, based on the equitable doctrine of "unclean hands." Community First Federal Savings v. Brenner, et al., No. 85-2-00073 (April 2, 1987).

III. HOME OWNERS' LOAN ACT

Sundance alleges that by requiring Brenner to erect two motels as part of the loan fee, Community violated an anti-tying provision of the Home Owners' Loan Act, 12 U.S.C. Sec. 1461 et seq. Section 1464(q)(1)(B) prohibits federally chartered savings and loan associations from conditioning the extension of credit on a customer's agreement to provide some property, credit, or service which is not of the type usually related to and usually provided in connection with the granting of such credit. ¹ The issue on this appeal is whether Sundance, which was not a party to the allegedly illegal loan, has standing to challenge the validity of the loan and to recover damages and obtain injunctive relief. The district court held that it did not. We reverse that holding in part, concluding that Sundance has standing to obtain injunctive relief but not to recover damages.

Standing is conferred upon a section 1464(q)(1)(B) claimant by section 1464(q)(2)(A), and section 1464(q)(3) which provide, respectively, that any "person" may sue for injunctive relief against threatened loss or damage as a result of a section 1464(q)(1) violation, and that any "person" injured in his or her business or property may sue for damages. ² The Act is silent as to the meaning of the term "person", and there are no cases interpreting that term under HOLA. Because of this silence, and because the language of HOLA's anti-tying damages provision, section 1464(q)(3), is identical to section 4 of the Clayton Act, 15 U.S.C. Sec. 15(a), ³ the district court applied antitrust standing doctrine to the damages claim. Standing under section 4 of the Clayton Act is limited to direct, as opposed to indirect, purchasers of goods priced higher because of a price-fixing agreement. Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977). Applying this doctrine to the instant facts, the district court denied Sundance standing to seek damages on the ground that Sundance was not a direct party to the loan transaction between Brenner and Community but only a successor to the borrower.

Regarding the claim for injunctive relief, the district court again applied standing principles governing relief under the antitrust laws, specifically section 16 of the Clayton Act ⁴; this provision is similar in substance to section 1464(q)(2)(A), the analogous HOLA provision. ⁵ Because the district court found that the misrepresentation to Sundance and not the actual loan transaction was the proximate cause of Sundance's injury, it held that Sundance lacked standing.

On appeal, the parties agree with the district court that HOLA's standing provisions should be read in light of antitrust standing law. We, too, find that antitrust standing principles provide substantial guidance in cases involving HOLA's anti-tying provisions.

First, we, like the district court, observe that HOLA's and the Clayton Act's damages provisions and those governing injunctive relief are, in substance, very similar. Equally important, the purposes of the anti-tie-in provisions of HOLA and antitrust law are similar in that they are both generally designed to guard against coercive trade practices that interfere with consumers' preferences and with their opportunities to seek services on the most favorable terms. For example, subsection A of section 1464(q)(1) prohibits a lender from requiring a customer to use that same lender for additional services. Subsection C provides that a lender may not prevent a borrower from using a different lender for such services. ⁶ These provisions mirror traditional antitrust tie-in rules. See, e.g., United States v. Loew's, 371 U.S. 38, 83 S.Ct. 97, 9 L.Ed.2d 11 (1962); International Salt Co. v. United States, 332 U.S. 392, 68 S.Ct. 12, 92 L.Ed. 20 (1947). Subsection B, the section involved here, departs from the classic tying model but is designed to deal with a closely-related coercive trade practice--the exaction of harsh or unusual terms of repayment. In enacting the tie-in prohibitions of section 1464(q)(1), Congress sought in large part to aid consumers by outlawing anti-competitive practices that constituted abuses of lending institutions' economic power. While subsection B is not in itself an anticompetitive provision, we believe that it serves the same underlying proconsumer purposes as the traditional anti-tying provisions, and that application of antitrust standing principles to that subsection as well as to the rest of the section is consistent with its general purpose.

We also observe that Congress intended that the standing rules be the same for all three subsections of 1464(q)(1), as opposed to one rule of standing for subsection B,...